2014 (12) TMI 1430 - HC - Companies Law

Company wound up after failing to pay $176,640 debt despite admitted liability and proper notice

The Bombay HC admitted a winding-up petition filed by a creditor against a company. The court found that the debtor company owed at least $176,640.94 to ... Maintainability of the petition by Severn Trent as a creditor - parallel proceedings in a suit and under the Arbitration and Conciliation Act, 1996 - petition is barred by limitation or not - petition is maintainable by Severn Trent as creditor, whether any case has been made out for winding-up on the ground of the inability of Capital Controls India to pay its debts within the meaning of Section 434(1)(a) of the Companies Act, 1956 - premature publication, Severn Trent having published an advertisement about the filing of the petition before any order was made on it. HELD THAT:- As of 2004, Capital Controls India was indebted to Severn Trent at least in the amount of $176,640.94. That amount is not in dispute. This debit is unequivocally admitted several times, including in the Affidavit in Reply. Were this a civil suit, on the basis of the statements in the Affidavit in Reply, Severn Trent could have moved to have judgment entered on admission in this amount of $176,640.94. There is no reason why, at least as regards the admission, a different consideration should obtain in a winding up proceeding. Capital Controls India’s indebtedness to Severn Trent is clear. It has, despite notice, failed and refused to pay this amount. The consequences must follow. The claim by Severn Trent is larger than this amount, and includes interest, and though Capital Controls India alleges that it has a counter-claim, it has done nothing at all to establish or prove that counter-claim. The company petition is admitted and is made returnable on 26th March 2015 - Service of the petition under Rule 28 of the Companies (Court) Rules, 1959 is waived. Issues Involved:1. Maintainability of the petition by Severn Trent as a creditor.2. Whether the petition is barred by limitation.3. Whether a case is made out for winding-up on the ground of the inability of Capital Controls India to pay its debts.4. Whether the petition is liable to be dismissed due to premature publication.Issue-wise Detailed Analysis:1. Maintainability of the Petition:The primary issue was whether Severn Trent could maintain the petition as a creditor of Capital Controls India. The court examined the pleadings, particularly the newly introduced paragraph 16A, which detailed the company's indebtedness to Severn Trent. The petitioner argued that the failure to comply with the statutory notice demanding payment constituted sufficient grounds for maintainability. The court found that the admissions of liability by Capital Controls India were clear and unequivocal, and the petition was maintainable. The court rejected the argument that strict compliance with specific wording in the pleadings was necessary, emphasizing that a substantial compliance approach was more appropriate.2. Limitation:The court addressed whether the claims were barred by limitation, considering the invoices dated from 1998 to 2001. Severn Trent argued that there were ongoing admissions of liability through board meetings and other communications until 2004, which kept the claim alive. The court concluded that the amendment to the petition did not introduce a new claim but rather built upon the original claim, and therefore, the claim was not barred by limitation.3. Winding-up on the Ground of Inability to Pay Debts:The court examined the admissions of indebtedness by Capital Controls India, particularly focusing on the amount of USD 176,640.94, which was repeatedly acknowledged in various communications, including a statement made before the Supreme Court. The court found that these admissions were sufficient to demonstrate the company's inability to pay its debts. The financial statements of Capital Controls India further supported this conclusion, indicating a precarious financial position. The court held that the petition made out a case for winding-up based on the company's inability to pay its debts.4. Premature Publication:The issue of premature publication was raised due to a public notice issued by Severn Trent. The court found that the notice did not reference any court order and was merely a protective measure to inform the public of the ongoing proceedings and potential liabilities. The court distinguished this notice from cases where premature publication was deemed an abuse of process, concluding that there was no basis for dismissing the petition on this ground.Conclusion:The court concluded that the petition was maintainable as a creditor's petition, not barred by limitation, and made out a case for winding-up due to the company's inability to pay its debts. The issue of premature publication did not warrant dismissal of the petition. Consequently, the company petition was admitted, with directions for further proceedings. The court emphasized the importance of admissions in determining the company's financial position and the validity of the petition.